I've been covering the business of news, information and entertainment in one form or another for more than 10 years. In February 2014, I moved to San Francisco to cover the tech beat. My primary focus is social media and digital media, but I'm interested in other aspects, including but not limited to the sharing economy, lifehacking, fitness & sports tech and the evolving culture of the Bay Area. In past incarnations I've worked at AOL, Conde Nast Portfolio, Radar and WWD. Circle me on Google+, follow me on Twitter or send me tips or ideas at jbercovici@forbes.com.

Facebook Asks Investors To Take Leap Of Faith On First Earnings Call

Somebody had his very first earnings call today. (Photo credit: Wikipedia)

One of the big factors that helped drive Facebook‘s IPO to the $100 billion mark was its unique mixture of proof and potential. The social network wasn’t just another Pets.com — or another Instagram, for that matter — a company whose ability to make money was still notional. It was a proven winner that made $1 billion in profit last year on $3.7 billion in revenue.

At the same time, it had only scratched the surface of the potential bound up in its 900 million-strong user base. Analysts loved to drool over Facebook’s untouched or barely-touched revenue levers, such as payments, commerce and mobile advertising. Any business that could benefit from a social layer or better data was potentially an area of growth.

In the weeks since the IPO, however, optimism has given way to skepticism. Doubts over the efficacy of Facebook ads and its ability to dominate the mobile internet the same way it rules the desktop universe have driven shares down 30%. Those untouched levers? They’re starting to look a little like lifelines.

On Facebook’s first-ever earnings call Thursday, founder Mark Zuckerberg and Sheryl Sandberg, his COO and top lieutenant, made a concerted effort to silence the doubts. Their pitch revolved around Sponsored Stories, a new form of advertising introduced in January.

“The best type of advertising is a message from a friend,” Zuckerberg said, explaining how Sponsored Stories work. (Basically, they’re user-generated posts that advertisers can pay to promote to the user’s friends.) “If I like a restaurant, my friends might see I like that place, and that’s a more convincing ad than anything the restaurant might produce on its own.”

Beyond being more effective — 53% more so when compared with standard banner ads, according to one study — Sponsored Stories offer another big advantage: They go right into a user’s Newsfeed. That makes them well suited to the mobile environment, where there’s no right rail to fill up with tiny ads.

“Sponsored Stories in Newsfeed are the cornerstone of our mobile monetization strategy,” Sandberg said. “This is important becasue we avoid the dilemma faced by other industry players: where to put ads on the smaller screen.” Sponsored Stories are already generating $1 million per day in revenue, half of that from mobile, said Sandberg.

That sounds pretty good, right? But think about it this way: Of the $1.18 billion in revenues Facebook took in during the second quarter (an amount that was roughly in line with analysts’ expectations), only about $90 million of it, or less than 8%, came from Sponsored Stories.

Granted, they’re a relatively new product and Facebook hasn’t fully rolled them out yet. Still, assuming Facebook’s usage trends track those of the internet as a whole, by 2015 its users will be spending more time with its mobile product than they do on its desktop site. Yet the form of advertising that constitutes “the cornerstone of our mobile monetization strategy” only accounts for 8% of Facebook’s overall revenues.

That’s not to say Sponsored Stories won’t be a game-changer for Facebook. The early indications have been positive. But anytime a company says the way it’s making its money now isn’t the way it’ll make its money in the future, that’s cause for concern.

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